State: ‘Dance tax’ shouldn’t bankrupt Seattle bars

State tax collectors have told Seattle nightclubs and bars they don’t want to put them out of business because of confusion over a tax levied on joints that provide an “opportunity to dance.”

In August the Stranger published a story detailing concerns by some bar owners who said they’d been told to cough up thousands and thousands of dollars in taxes they didn’t think they owed – including more than $200,000 in one case. The state had said that if a business makes people pay a cover charge to enter and provides them with an “opportunity to dance” they were subject to a specific “retail sales tax and the Retailing classification of the state business tax.”

That back tax liability could’ve led to the closure of some establishments, said bar owners, who mostly wanted to comment off the record. Bar owners also complained that state auditors were now dinging them for a tax they hadn’t been subject to in the past.

Earlier this month Alyson Fouts, legislative manager for the state Department of Revenue, e-mailed the Washington Restaurant Association about the concerns raised by businesses.

“The Department recognizes that requiring payment of all such past period tax liability can be a hardship where the nightclub business had not collected the sales tax. It is certainly not the Department’s desire to cause these businesses to close their doors due to past liability regarding ‘cover charges’ for the opportunity to dance,” Fouts wrote. “The Department’s goal will be an equitable resolution that both allows the nightclub business to continue operating and recognizes the state’s interests. For that reason, the Department will look to resolve past opportunity to dance period liabilities on a case-by-case basis.”

The Department of Revenue has also offered to help interested state lawmakers draft legislation that could clarify the somewhat vague law.

Some owners of primarily live-music venues targeted by owners said they should qualify for an exemption that singles out tickets and cover charges to live music as “entertainment,” not subject to the tax. But auditors said if patrons had the “opportunity to dance,” the tax applied. This led to pushback from those who pointed out that sports teams like the Mariners don’t have to charge the tax for admission to Safeco Field, where patrons have the “opportunity to dance” and are sometimes encouraged to do so.